Thought leadership articles

Brian Keegan, Director of Public Policy & Tax, weekly column in the Sunday Business Post

Originally posted on the Business Post, 10 May 2020
The phrase “in these uncertain times” can't disappear fast enough from our public discourse and commentary. The extent of the uncertainty, be it in our business, personal or social lives, is compounding the discomfort of the lockdown. This week's news that talks had finally commenced on a programme for government should be dispelling some of the uncertainty, but can any of the three players, Fine Gael, Fianna Fail and the Greens, win acceptance for such a coalition?
Even arriving at an agreed programme for government is in real doubt. The recurring mantra of the putative minor party in government, the Greens, is that any programme for government has to signal a 7% reduction in carbon emissions annually. Nothing illustrates just how tall an order that is than, even with the reduction in economic activity, travel and fuel consumption because of the Coronovirus lockdown, that 7% target won’t be met this year.
According to recent research by Carbon Brief, a publication which focuses on climate science, the estimated global carbon reduction in 2020 thanks to the worldwide pandemic lockdown will only be 5.5%. This particular estimate might not be entirely agenda free, as Carbon Brief is supported by a group called the European Climate Foundation whose aims are to promote policies to reduce greenhouse gas emissions. Separately however, the International Energy Agency's latest numbers project that emissions will have dropped by 8% by the end of the year. This agency, originally established to secure oil supplies for some OECD member nations including Ireland, also points out that the lockdown effect is six times larger than that caused by the great recession in 2009.
It seems that the crippling misery of the lockdown is only achieving the same scale of reduction in carbon emissions that the Green Party is insisting we achieve each year.
To be fair to the Green Party and their supporters, their general election manifesto was clear in its target of achieving a 7% reduction in annual emissions for the next decade. The Green Party manifesto had plenty of ideas for what needed to be done to achieve that, and even some ideas for how the associated costs could be met. Their taxation suggestions were derived from old proposals and the manifesto offered little indication of how much additional tax might be collected to fund reform of the way we care for the environment.
The Green manifesto asked for a financial transactions tax, seemingly oblivious to the havoc it wreaked on the stock exchange of one European country that did introduce one, Sweden, in the 1980s. They want to reduce VAT on products and services linked with energy conservation, but that would require a change by the European Commission to the VAT Directive and is not within the gift of an Irish government. They raise the old chestnut of a wealth tax on individuals holding assets over €10 million but without saying what the rate might be let alone how much it might bring in. They want Ireland to support the OECD processes for global corporate tax form, even though Ireland has been among the earliest adopters of those change proposals.
No political party manifestoes for the last general election remain relevant because none of them were drawn up at the time of a pandemic. The Green proposals to fund environmental initiatives are particularly problematic. They weren’t coherent even at the time of their drafting, yet their greenhouse gas emission reduction target remains a red line for their participation in government. What are they actually proposing to meet the cost of developing alternatives to our current patterns of energy generation, storage, transportation and consumption to reach this target? Their manifesto proposals won’t do it.
A new government is urgently required to ensure we can continue to bailout our damaged businesses and support the unemployed. It is right to fear global warming. It is right to be terrified of coronavirus and its impact on our people, our healthcare workers and our communities. But the country cannot continue to deal with either crisis without having a reasonable economic footing. We can neither tax nor borrow our way both to economic recovery and to a 7% greenhouse gas emission reduction target within a year or two. Thanks to the pandemic, it may not even be possible within the lifetime of one government.
All over the country, in every walk of life, totems are being knocked down. In the space of a few weeks, we have re-engineered how our public services are delivered, how we shop, how we educate and assess student achievement. Many businesses have re-imagined their business model and are still trading, often online, using courier deliveries and with people working from home.
Our politicians involved in government formation talks must now also re-engineer the attitudes of their parties and supporters. Unless they do, there will be no certainty of success in government formation talks. The time for red lines, and green lines, is past.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally published in Business Post, 3 May 2020
In common with many revenue authorities across the world, the Revenue Commissioners are being asked to channel government cash supports through the pandemic to the businesses which can claim them. The job however of Revenue is primarily to collect money, not to pay it. A tax system cannot be liberal indefinitely.
Along with operating the wage subsidy scheme, Revenue have in recent weeks granted moratoriums on tax filing dates and tax payment dates, effectively allowing many smaller businesses to decide for themselves how much tax they are going to pay and when. This isn't sustainable – somebody has to pay the nurses. The wage subsidy scheme is time bound to 12 weeks. There won’t be interest charged on late payments of VAT and PAYE which are due in May from many businesses but we don’t know the position beyond that. Government will have to clarify if Revenue will be asked to extend these temporary but very useful measures as it outlines its recovery roadmap.
Concrete numbers on the impact of the crisis on the economy will be seen in the April Exchequer figures due to be published by the Department of Finance tomorrow. Most of the tax collected in April typically comes from PAYE income tax on wages paid during the month of March. Even these figures will only hint at the full story as we already know that the employment situation was worse and the impact of the temporary wage subsidy scheme was far higher during the month of April.
Government has already signalled that the wage subsidy scheme itself could be tapered or finessed beyond the 12 week period already advertised. Any adjustments could take the form of a blanket extension, or perhaps more effectively by refocusing it on those business sectors where employment is most affected in the crisis. These sectors include the hospitality sector and the construction sector.
This would be possible because the businesses in those sectors can be readily identified and also because the usual concerns over the EU State Aid rules if tax is being used to favour one industry over another don’t apply. EU Commissioner Margrethe Vestager, best known perhaps in this country for her fascination with the tax affairs of Apple, last month arranged what in effect is a suspension of many of the usual State Aid rules until the end of this year.
The response to the Coronavirus crisis is stress-testing wider issues within the tax system as well. The use of tax havens at a time when governments everywhere are struggling for tax collection has been thrown into focus. Both the French and the Danish governments are reported as blocking emergency supports and funding to companies registered in tax havens.
The tax residency rules, which determine the taxability of an individual by reference to their location, or the taxability of company by reference to where the directors are located, are also being stretched by the contagion. The issue of whether non-residents should be taxed has long been contentious here and led a few years ago to the introduction of the domicile levy. This is a tax on wealthy Irish individuals based on their Irish business interests here as distinct from their presence here. But is it right to charge taxes on individuals just because their flights have been cancelled? Revenue have already introduced some temporary pragmatic workarounds solve these problems, but the new normal might well require a more permanent solution.
New taxes are often the by-product of crises. The great recession of 2008 left us with local property tax and the universal social charge. The global recession in the 1970s saw the introduction of capital gains tax, along with revised approaches to taxing inheritances and brand new rules for companies. Income tax itself was originally conceived in the UK as a temporary tax to help fund the Napoleonic wars at the turn of the 19th century. Once a new tax is invented, it tends not to go away.
A lasting legacy of the coronavirus pandemic could be some completely different form of tax. This is difficult to do if only because governments everywhere through the ages have already figured out how to tax most things, leaving little room for new approaches. Another possibility is the reform of existing taxes towards dealing with the consequences of the pandemic, and there are many precedents for this type of manoeuvre.
One such precedent is the solidarity surcharge in the German system which is an additional fee on income tax, capital gains tax and corporate tax. The solidarity surcharge is paid by every individual and company and it bolsters up the tax rates by 5.5 percentage points in each case. It came about to help towards the cost of reunification of that country. It remains an element of the German tax system almost 30 years after reunification was completed. Surcharges like this should serve as a further warning to enthusiastic policy makers that it can be very hard to ditch a new tax.
As matters stand now however the Irish tax regime has never been more liberal in its administration of income supports, in its relaxation of some traditional rules and in its benign treatment of late payments. None of these will last.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally published on Business Post, 26 April 2020
One of the most inane comments I heard about Brexit was from a management guru who said that the Brexit crisis only forced businesses to plan in ways that they should have been doing already. As being wise after the event goes, this takes some beating. It's like remarking that falling off a pier should prompt you to consider taking swimming lessons.
Yet if Brexit caught some of us unawares, everyone was blind-sided to the prospect of a Covid-19 pandemic. Even the Minister for Finance could admit this week that a pandemic was not on the critical planning path of his department, while observing that it probably was not on the planning radar of any other finance minister in the world either. Every business is now though being prompted to reconsider what they do and how they do it.
Ironically one of the most compelling prompts is coming from the Revenue Commissioners.
The Wage Subsidy Scheme run by the Revenue is very successful. Some 300,000 workers are taking home more than they might otherwise take from over 45,000 employers as a result of the scheme. The scheme received a further boost with last week’s announcement of enhanced subsidies for lower paid workers. In addition, workers whose pre crisis earnings exceeded €76,000 per annum but who have since suffered pay cuts to bring their earnings below that cut-off threshold may now also be eligible for wage subsidies.
While the focus has rightly been on the plight of workers, wage subsidies are of course paid to businesses which in turn pass them on to their employees. Unlike its UK counterpart (also of course applicable in Northern Ireland) where eligibility is predicated on people being laid off temporarily on “furlough”, eligibility for the Irish temporary wage subsidies is based on a decline in business.
At its simplest and crudest measure, wage subsidy scheme eligibility depends on a fall-off in sales or orders of 25% or more in quarter two of 2020. That is as against a comparable period, typically quarter two of 2019. For many of us, that level of fall-off is all too evident. Nonetheless, not all businesses, though they may be severely challenged by the lockdown, can convincingly estimate a 25% drop-off for quarter two. That could be because some strands of their operations are continuing to thrive despite the lockdown.
Consider for example a wholesale and retail trade. Retail may have dried up completely because there is no footfall, but the wholesale side of the business continues perhaps with even increased demand for some product lines. Similarly a training organisation may find that while demand for an attendance at classroom-based sessions has evaporated, its online training offerings are experiencing a surge.
The newest version of Revenue guidance addresses the position for such industries, permitting them to identify individual commercial streams within their organisation which are experiencing a 25% drop-off in business. Employees associated with those elements of the business should be eligible for wage subsidies.
When claiming the temporary wage subsidy in accordance with this newer version of guidance, businesses must be able to show that the divisions which are in trouble within the organisation are long established, and in particular had been well established before the pandemic. Makey-uppy commercial divisions within companies constructed for no reason but to apply for wage subsidies will wither under future Revenue scrutiny.
Even if some shop doors are open post 5 May, training venues eventually open their doors, and passenger number restrictions are eased at some point in the future, will there be bodies to buy or to learn or to travel as in the halcyon days of 2019? That may take a lot longer. A self-imposed lockdown will remain, not least because the shaking of both personal and industry finances over the past several weeks will have instilled caution. A newfound and exaggerated prudence will prevail for months to come even after the restrictions are lifted. The Minister for Finance signalled during the week that the wage subsidy payments could continue in a changed or tapered form beyond their twelve week span which is due to end in June. This will be necessary and we all now need to look beyond that point.
Those businesses along with the individual divisions within companies and organisations which are currently not eligible for wage subsidies will form the backbone of the recovery. However, if we do not ensure that support is maintained for the industries most damaged by the Coronavirus crisis, national recovery will be patchy at best. The level of unemployment, forecast this week by the Department of Finance to reach 220,000 by year end, will remain stubbornly high.
Job retention and restoration – remember that the subsidies can also be claimed for workers who are re-hired - are critical to achieving a rapid recovery. The Wage Subsidy Scheme is fundamental to ensuring this can be achieved. It is surely better for the country to subsidise workers’ wages as markets return to normal than to pay dole. Unlike the last financial crash and unlike Brexit, we can be wise before the event as we resolve the crisis.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally publised on Business Post, 19 April 2020
Dear Minister
This week you promised to publish a policy response to support the recovery. You have made the point in the past that while many people have great ideas as to how money should be spent in our economy, few make proposals as to how money might be raised. In happier times it was relatively straightforward, though never popular, to raise additional taxes.
But that was then and this is now. In our now crippled economy where industry is already unable to meet existing tax commitments, what type of measure would bring in an additional €1 billion over twelve months? Income tax increases? Hardly. A VAT increase? Possibly. But even if it did, how far would €1 billion go towards making a difference in our current downturn when €250 million has already been paid out in Wage Subsidy alone? Whatever else you include in your recovery policy Minister, tax increases should not feature.
Many comparisons have been drawn between the downturn in 2008 and our current crisis, but the current dilemma is fundamentally different. In the past few weeks industry across the world has been put into a government induced coma to help tackle the pandemic. Compare that to the last time, caused by a global financial collapse. Interest rates are now much lower than they were at the time of the last recession, and the EU institutions are creating a pool of cheap money that countries can draw on to rebuild shattered economies. Compare that to the last time when the Troika came to Dublin because, as a nation, we couldn’t borrow money.
That's not to say that there aren't lessons from the great recession. You and your officials will be aware that the ballooning of the national debt from 2009 onwards was not primarily due to the bank bailout, but rather to the decisions by the then government to maintain social cohesion by preserving state benefits and public services as best we could until employment levels came back towards more normal and sustainable patterns. That took seven years of austerity to achieve. On current evidence we will need to borrow again in 2020, but we must contain the borrowing requirement in future years to avoid a repeat of prolonged austerity.
To do this we should look beyond the models generated of traditional economics and also draw guidance from other disciplines. The key guidance from accountancy is crystal clear - nothing kills a business quicker than a lack of cash flow. When businesses disappear, the employment they create also disappears. If we are to secure business recovery and also to provide a reasonable standard of living for the majority of our citizens, jobs have to be restored and preserved as quickly as possible.
The wage subsidy scheme directly correlates jobs with business activity. Even if the wage subsidy scheme has to be extended beyond the current 12-week period using heavy government borrowing, that might be money very well spent. Restoring employment and income levels will reduce social welfare demands and boost income tax revenue in the years ahead. In turn that reduces the future borrowing requirement.
Cash infusions to business will be needed beyond the lifting of Covid-19 restrictions. Behavioural economics warns that decisions tend to be made in a risk averse way. People also tend to base their decisions on more recent experience and information even when the experience and information is not objectively correct. That suggests that there will be considerable hesitancy in the consumer and financial markets for many months to come.
Purchasing and investment patterns comparable to those of 2019 will not return as long as the horror of the disease and the worry of the lockdown remain in people’s minds. Short of discovering, and widely deploying, a Covid-19 vaccine it may not be possible to change mind-sets quickly. Even if confidence rapidly returns to our domestic market, it may not return as soon rapidly to our export markets. Planning on the basis that all will return to normal post lockdown would be too optimistic.
More positively, the management of the current crisis may be restoring confidence in public services. Rightly or wrongly, there was increasing scepticism in recent times about the capacity of government and the public service to deliver. There were high profile examples of questionable financial procurement like rural broadband and the National Children’s Hospital.
However in recent weeks we have seen that the public sector can react quickly and effectively. There is momentum to carry forward elements of the current response to Covid-19 that think the previously unthinkable - putting more elements of housing, health and insurance directly under public control and flexibly redeploying public servants where they are most needed in service provision, standards maintenance and regulation.
Minister, the actions by you and your colleagues in this government and the next will not be judged by the electorate on immediate outcomes. They will be judged by reference to the impact on our daily lives in 2021 and 2022 and beyond. A return to the type of austerity we experienced following the financial collapse is something the Taoiseach has said is to be avoided. It can be avoided if the national recovery policy maintains the current emphasis on keeping cash in businesses, empowering the public sector and not expecting a return to normal anytime soon.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally published on Business Post, 12 April 2020
In many successful businesses, Revenue is one of the largest creditors. It's no surprise therefore that many of the emergency reliefs for business, arising from the government response to the pandemic, should be channelled through the tax collection system.
Ireland is not the only country taking the tax route to get funds into cash-starved industry. The likes of the UK, Canada, Australia and New Zealand have introduced assistance and supports very similar to the Irish wage subsidy scheme. Some of these schemes differ in the detail. Other countries look for a projected 30% or even 50% reduction in turnover for businesses to be eligible rather than the 25% sought here.
Despite the cash lure of the Wage Subsidy Scheme, the take-up after the initial flurry seems to have stalled at around 40,000 of the 176,000 or so employers which could, in theory at least, avail of the scheme. One major sticking point seems to be the position of lower paid workers, many of whom believe that the pandemic unemployment payment of €350 may be a better fit for them than lower after-tax wages, even if the wages are subsidised.
Just as wages, subsidised or not, are taxed, there will be tax due on the pandemic unemployment payments. There is a widely held misconception that state benefits are not taxable, but in fact most of them are. Payments like jobseekers benefit, maternity benefit and the state pension payments are subject to tax, and payments to individuals are notified directly to Revenue by the Department of Employment Affairs and Social Protection. The pandemic unemployment payment will be subject to tax even though that tax is not deducted from the payments at source. It will be assessed and collected next year, though many of us are focusing more on what we will have to do next month.
While the wage subsidy scheme is a lifeline that businesses should grab hold of if they can, there are other concessional treatments from Revenue for businesses during the crisis. These are receiving less attention, but perhaps in some cases may be more useful.
The best way for government to get cash into business is not to take it away in the first place. This is the rationale behind interest forgiveness on the late payment of recurring PAYE and VAT bills, and other jurisdictions are examining this Irish approach to see if they should also apply it. The March Exchequer returns weren't as bad as some had predicted, but the falloff in VAT paid to the Exchequer was directly attributable to this concessional treatment. Almost €1 billion worth of working capital was kept in Irish business in March through the simple expedient of allowing business the flexibility not to have to settle their VAT bills last month.
We can expect to see this trend repeated in the coming months to the detriment of the Exchequer receipts. Revenue don't even request smaller industry – businesses with a turnover of €3 million are less – to notify them in advance if they are opting not to make VAT or PAYE payments. It is important for businesses to continue making tax returns of all types, even if there aren't tax payments being made with them. Bear in mind that the tax itself is not been written off; rather the payment model is being relaxed. The responsibility to file tax returns is not being lifted nor is the responsibility, ultimately, to pay the tax at some stage.
Another way for businesses to get cash from Revenue is to apply early for any refunds or credits which might be due. Many of the Revenue phone services have been curtailed but I gather that correspondence is being dealt with quite quickly, particularly through the Revenue on-line channels. Arrangements have been publicised to accelerate the refund of professional services withholding tax. This is a withholding tax which some service industries suffer on many government, state and semi-state contracts. A similar approach is being taken to refunds of relevant contracts tax which is a form of withholding tax applied in the construction, meat processing and forestry industries. Companies which have spent money on research and development can also request earlier refunds of the tax credits which might be due to them.
All these refund claims can and should be made now, but this crisis will end. While the focus of tax system interventions is on supporting cash flow through the crisis, planning is needed to stimulate and support industry recovery post crisis. Some countries are already modifying their tax systems with that in mind. In New Zealand, a country with very few tax reliefs and incentives, tax breaks are to become available for investment in factories and premises. In South Africa, a new scheme allows companies with spare cash to get a full tax deduction for their investment in a government loan fund. That in turn can be used by businesses needing cheap finance.
Incentives like these will be needed here too. Revenue will in time revert to their default position as cash collectors. Irish business will need to be able to pay them, the largest creditor.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland.

Originally published on Business Post, 5 April 2020
In the last 10 days, the giant engine of the PAYE system has been thrown into reverse. Usually it's a machine for hoovering up tax. Now it's doing the opposite, allowing government to pay the wages of businesses in trauma due to the government’s decisions taken to combat the Covid-19 health crisis.
By midweek, Revenue were already briefing that they had paid out €34 million in wages to over 30,000 employers already availing of the scheme. If nothing else, that's an impressive piece of administrative work.
The new Irish PAYE system which was introduced only at the start of last year was modelled on a British system. It integrates the payroll process of employers with the data and money crunching IT systems of the Revenue Authority. Yet the British refund system for employers will only start delivering the cash in the next few weeks. The Irish system is doing it immediately. Because nothing kills a business quicker than strangled cash flow, this urgency will make a real difference.
For all that, the Minister for Finance still felt he had come out on Thursday morning to encourage employers to claim the assistance of up to €410 per week for employees who earn below the average industrial wage, and up to €350 per week if the employee typically earns anything up to €76,000 per week gross per annum gross. Why was that necessary?
It certainly wasn't because people weren't being laid off. We learnt later on Thursday from the CSO that over 280,000 people are now receiving Pandemic Unemployment Payment. Within the space of a few short weeks, the country moved from virtually full employment to record levels of unemployment.
Nor is it because employers are so flush with cash that they don't need government support. Again on Thursday (which was rapidly turning into Gloomsday) we saw from the Exchequer returns for March that the monthly taxes collected from businesses, primarily PAYE and VAT, were down by almost €1bn on the same month last year. This drop becomes all the more concerning because it doesn't just reflect the falloff in employment during the month of March. Rather, it more reflects the cash flow difficulties for businesses. Smaller businesses in particular seem to have been availing of the suspension of interest charges on VAT, and deferring payments which would have been due last month.
In this country it's usually the big employers that make the headlines – the public service, the semi-states, the major multinationals, the big indigenous manufacturing and service firms. It took an announcement of over a hundred new jobs to even get noticed by a media business desk, let alone merit a headline. In reality, job numbers of that scale don’t reflect the typical profile of employers in Ireland.
Approximately 176,000 businesses employed people before the crisis, but over half of Irish employers employ 3 or fewer people. One in four have only one employee. These are the small traders, small retail outlets, and small services businesses. Some are what are termed personal service companies. These are companies employing only one person, their owner, set up as a commercial structure to win contract work often within the IT industry. Large employers in Ireland are the exception rather than the rule. Only about 2% of employers employ more than 100 people.
Because the profile of employers is so heavily skewed towards smaller entities, this may partly explain the official concerns about the level of take-up of the scheme so far, where only on in five employers have bought into it. The majority of employers in Ireland do not have high power advisers or HR departments. Up to now they might not simply have had the headroom to put claims in place, because the arrangements are fairly complex and new scenarios are emerging daily. The PAYE machine has been thrown into reverse and when any machine is put into reverse you can end up with a lot of wheel spinning and grinding of gears.
Other reasons for employers not availing of the wage subsidy scheme may include having highly paid employees who earn over the €76,000 per annum mark and who are therefore excluded from the scheme. Yet another group of employers might be treating this crisis as an opportunity to fulfil their plans to reduce staff numbers, so they won’t be making claims for wage subsidies.
Lastly concerns over privacy or post crisis vulnerability to litigation once the crisis has passed are still circulating. These seem to have dissuaded some employers from making claims. Beware of fake news. Every commercial decision involves some risk, and employers should look at the terms and conditions of the scheme again and make up their own minds.
The wage subsidy scheme is not money for nothing. Instead it is commercial recompense for government mandated commercial shutdown. Employers who are entitled to it should avail of it.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally published in the Business Post, 29 March 2020
You don’t need to be an economist to know that the collapse in the demand and supply of goods are accounting for a lot of the Covid-19 job layoffs. All the time however, the focus in the commentary is on the disruption to employment.
Much less is heard about the situation of the self-employed.
Only a few short weeks ago, there were 2.36 million people employed in this country. Of that number, 330,000 were self-employed – working mostly in the trades and professions, some in retailing, many in services. In relative terms, by European standards, Ireland has (or perhaps had) a high proportion of self-employed relative to employees . How well are the self-employed being looked after in the crisis?
As a general principle, the self-employed are not entitled to many short-term benefits like illness and disability benefita. All workers in this country, employees or self-employed, pay PRSI at a rate of 4%. That is not the whole story. Employers pay on behalf of their employees a further amount of PRSI up to 11.05% of wages. It is this additional contribution that funds the wider range of benefits available to employees above what is normally available to their self-employed counterparts. But these are not normal times.
Previous downturns have been a consequence of market instability, poor trading decisions and faltering economic decisions at government level. This time it is different. The economy is collapsing because, for the excellent reasons of public health and safety, the government has decided to directly or indirectly close many businesses down.
Self-employed though doesn't always mean solo employed. About 100,000 or so of our self-employed cohort are or were themselves employers, giving work to other professionals and tradespeople and support staff. It is this group that can benefit most from the emergency supports from Government, because many will be able to claim wage subsidies for the people working for them. These subsidies are not just for companies – the self-employed are also eligible.
First announced on Tuesday last, the details of this Wage Subsidy scheme are still taking shape almost on a day by day basis. Because the scheme is being run by Revenue, an agency more usually associated with taking money away rather than disbursing it, it is a new departure for everyone concerned. The big question for employers is whether they can qualify, but the gist of the scheme is now clear. According to Revenue the focus is on “significant negative economic disruption on the employer due to Covid-19”.
The key criterion is a reduction of 25% in likely turnover due to Covid-19. That’s turnover in the second quarter of 2020, against a yardstick of a comparable quarter in 2019, or even a decline in orders in March 2020 in comparison to February 2020. It’s not about business collapse or insolvency, and businesses with strong cash reserves can still qualify for the subsidy. Even a start-up business might be eligible where it can show that the investment won declined by 25% as a result of Covid-19.
This wage subsidy scheme is being operated on a self-assessment basis. It is up to the business owners and directors themselves to decide they fit the criteria, and the subsidy will be given on their application. Revenue reserve the right to come knocking after the crisis to check claims, and there will have to be documentary evidence available that the claim was valid and justified. Yet because this scheme is all about business preservation and being ready to get back up to speed when the crisis ends, many businesses can and should qualify. This is particularly true for self-employed businesspeople with employees of their own.
Few sectors suffered to the same extent as the self-employed sector during the 2007/08 recession, and few businesses took so long to recover as businesses in that sector. Nowhere is this better illustrated than from the income tax take from the self-employed. That fell from €2billion in 2007 to €800 million in 2010, and it took five years to recover to its former level. Commercial catastrophe at that scale must not happen again.
A significant advantage of the schemes announced this week is that the cash will be delivered quickly. Compare that with the supports announced this week for the self employed in the UK, where there will be direct grant aid for some self-employed businesses, but payments won’t be made until June. God knows where we’ll all be by then.
There are still some anomalies – the weekly pandemic unemployment welfare benefit of €350 for the self-employed without employees looks low - but the announcements and legislation this week provide much more support for many self-employed people than was available just ten days ago. Perhaps one of the outcomes of the Covid-19 crisis is that the self-employed are being recognised for their employment capabilities. They are now more on the radar when it comes to economic policy.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally published on Business Post, 22 March 2020
We are all struggling to become used to social distancing, but there is no such thing as fiscal distancing. When almost nothing else works as normal, the tax system does. The additional burdens which coronavirus is placing on the exchequer, due to increased social welfare payments and emergency care measures, will not be offset by tax revenues – in fact, quite the opposite.
While often it is the tax paid (or not paid) by wealthy individuals and multinationals that captures the headlines, the bread-and-butter of exchequer funding is the Vat and PAYE collected by the business community throughout the year. Last year one in every four euros of tax collected was Vat and it was the second largest source of money for the exchequer.
Generally, Vat is paid over every two months and the Vat collected by businesses on sales during January and February is due tomorrow. Vat is primarily a consumer tax, and the bill could be large. We still ate in restaurants, drank in pubs, bought cars and clothes and attended events during January and February.
Many businesses have a PAYE bill due this week as well, reflecting payroll deductions during the month of February on wages paid before the layoffs and closures we have seen in the past fortnight. Vat and PAYE together make for a big tax bill and a cash-flow challenge.
There are two fundamental aspects to tax compliance – the payment and the tax return. While the payment is usually the main concern, it is in fact the tax return which can land a taxpayer into serious trouble. Incorrect, late or missing tax returns result in people being fined or penalised or ending up in court or being published on the list of tax defaulters. Late or missing payments on the other hand are mostly pursued using routine debt recovery methods, so the best advice for any business facing problems with tax payments is to make the tax return anyway and worry about the payments later.
The Revenue has signalled this week that it will waive interest charges on late payments of Vat and PAYE for businesses with a turnover of less than €3 million. This is an unprecedented departure from its usual policy. Normally, as Donald Tusk might have observed, the Revenue reserves a special place in hell for businesses who default on Vat and PAYE, on the basis that this money has already been recovered from their customers and employees and should be paid over to the Revenue forthwith. Not even during the crash in 2008 did thebRevenue offer any succour like this for businesses.
Another step in the right direction is the application of the new PAYE real time system to ensure that workers laid off due to the coronavirus crisis will get their social welfare benefit of €203 per week as quickly as possible. This column has griped in the past about the cost to employers of implementing Revenue-compatible payroll software to make the new PAYE system work, so it is good to see some return on that outlay. Participating employers will be able to pay the emergency social welfare benefit of €203 per week and expect to recover the amount from the Revenue within a matter of days.
Terms and conditions apply, because we must recognise that this benefit is to facilitate the rapid payment of social welfare benefits to people who have been laid off as a result of the coronavirus epidemic. It is not an opportunity for payroll substitution, or for manipulating figures, or for taking on ghost employees. Again, to channel Donald Tusk, there should be a special place in hell reserved for anyone trying to game any system which has been established to help workers and their employers deal with this calamity.
The current fall off in tax receipts is a result of the evaporation of demand – for fuel, for services, for goods. Because of this we can expect monthly exchequer receipts to fall by hundreds of millions every month over the coming months. It's another compelling argument, even if one were needed, for social distancing. The shorter the crisis, the sooner demand will return, and the less damage will be done to the economy.
While the bank bailout is often blamed for the surge in the national debt following the Great Recession in 2008, most of the debt was racked up by the decision to continue paying social welfare benefits and provide services during years when the tax revenues simply weren't there to support them. This is now happening again, but our tax yield is better shielded now than it was in 2008. For one thing, we are less reliant on capital taxes. It may even work out in our favour that corporation tax receipts are derived from a relatively small number of multinationals operating in industries which might not be as badly affected by coronavirus as some others.
For many businesses facing tax bills this week, though, the advice is simple. Make sure the Vat return is made to the Revenue, and that your PAYE system is accurate and up to date. If necessary, worry about the payments later. You cannot do fiscal distancing.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally published on Business Post, 15 March 2020
At an Ireland Funds fundraising dinner in Washington last week, Taoiseach Leo Varadkar pointed out that while much of the time, words don't matter, the words of Nancy Pelosi, the US House of Representatives Speaker, typically do. It was a good line, but it's not just who says things, it is what is said that matters.
The House Speaker’s words cited by the Taoiseach were significant because they signalled to the British that any trade deal that disrupted the Good Friday Agreement would not be a runner in the US. Less than 12 hours later, Varadkar himself was in the business of words that matter when he announced the social distancing measures taking effect this weekend to counter the spread of the coronavirus.
His announcement acknowledged the disruption to working patterns and to the economy, but the threat of Covid-19 has already been having those effects for several weeks. Even the enormous PR machine of Irish/US business relations was rattled long before the Taoiseach announced that Ireland was to change gear, and before US president Donald Trump announced his nation’s clampdown on international travel.
Coronavirus did not knock Brexit off as the hot topic on the Ireland/US business agenda for the week, because Brexit was not the hot topic to begin with. The burning issues for Irish trade with the US at the moment are tariffs and tax.
On the tariffs front, Irish problems derive from the World Trade Organisation ruling that France had provided trade subsidies to Airbus. That in turn prompted retaliation from the US which put additional tariffs on goods of many descriptions, like butter and cream liqueurs. That's hardly fair to an exporting country like Ireland, but we are in the EU and it is the US and EU that are in dispute.
Rewriting the tax rulebook
The other big challenge is the old perennial of tax policy. Much is made in Ireland of the enormous lift in corporation tax receipts, triggered by the relocation of intellectual property assets – patents, knowhow and the like – into the country. This phenomenon has been flagged domestically as a problem if we become too reliant on corporation tax to fund day-to-day spending. It is no harm to be reminded that the exporters of such intellectual property, notably the US, are not delighted by the bonus tax receipts in Ireland either.
Ultimately, largely thanks to the US Tax Cuts and Jobs Act of 2017, Uncle Sam is better off if the intellectual property is located here rather than in one of the traditional warm and sunny island tax havens. Yet the US remains deeply suspicious of the continuing European attempts, driven by the OECD, to re-write the tax rulebook for multinationals, particularly those in the high-tech sector.
All of this creates an unwelcome drag on transatlantic trade and investment, particularly as Irish/US investment is a two-way street. State agencies in the US compete for Irish investment just as the IDA competes for US investment here.
The effects of coronavirus on the Ireland/US business narrative taking place in New York and Washington last week may be short lived compared to these tax challenges. Instead its main effect could well be to change the increasingly fractious negotiating narrative on Brexit between Britain and the EU. Here's why.
Expensive and cumbersome
Much of the Brexit discussion so far has had to do with trade in goods rather than trade in services. It's easy to predict the impact of Brexit on the trade in goods, because tariffs are known and quantifiable and business reactions to their imposition are predictable. Tariffs do what they are designed to do, which is to make imports more expensive and exporting more cumbersome. We know what happens when tariff and quota patterns depart from the norm, because we see real-world examples. These can be major, like the US/China trade dispute, or something apparently trivial like a work-to-rule by French customs officers. In both cases, disruption of the existing norms can be measured and quantified.
Compared to the trade in goods, there have been relatively few instances where trade in services becomes shifted from the norm, at least up to now. Services are provided by people and, thanks to coronavirus, people are now subject to social distancing. That disrupts the capacity of businesses to provide services both domestically and internationally with a consequent disruption to the economy as the Taoiseach acknowledged.
Courtesy of the scourge of the coronavirus the Brexit negotiators are being presented with unprecedented evidence of the consequences of failing to get agreement on cross border trade in services. The next few weeks will show what happens in practice when countries restrict free movement of people, when they limit recognition of qualifications, and when they deny licences to provide services like financial services in different markets.
Ireland’s trade surplus with Britain is dependent on services, not goods. We deal more with Britain than with the US. The Brexit negotiators need to get it right. As the Taoiseach pointed out, words do matter and Nancy Pelosi’s words will shape the future trade deal. The bitter experience of coronavirus should shape it as well.
Dr Brian Keegan is Director of Public Policy with Chartered Accountants Ireland.

Originally published on Business Post, 1 March 2020
Ten billion dollars is a staggering amount of money. It’s the amount that Amazon’s Jeff Bezos, one of the world’s most prominent business people, promised last week to contribute to fight climate change. It's rare that business imitates politics yet this is what seems to be happening in the growing debate over sustainability.
Bezos’s commitment is only an outlier by virtue of the scale of the money involved. A survey last year by environmental consultancy EcoAct found that 99 per cent of FTSE companies measured or reported on their carbon emissions. This kind of behavioural change seems not to be just confined to larger industry. It is being adopted by businesses of every size.
At a business panel discussion on sustainable finance held earlier this month in the Irish Embassy in London, a straw poll was taken of more than 100 attendees from all walks of business life. They were asked whether or not their organisations were taking any steps, however small, to protect the environment. Not a single person in the room admitted to their organisation being indifferent or not changing behaviour or policies.
Some of the changes identified were obvious, like reducing the use of single-use plastics. More significant approaches also featured, like changing the company's investment strategy in favour of greener industry. Some companies tended towards less obvious tactics, like sourcing supplies for the staff canteen nearer to home to reduce food air miles.
If the commitment evident in the business community towards sustainability could be transposed into the political sphere, the likes of the Green Party would have no difficulty whatever forming governments.
Yet for all the business commitment, the topic of sustainability itself remains vague and somewhat elusive. Part of the problem is how to define sustainability. When industry speaks of sustainable finance, the underlying assumption is often that it has to do with environmental conservation – the reduction of carbon emissions, the conservation of scarce natural resources, and a general reduction in the generation of pollutants.
Other important topics, like reducing the exploitation of labour in developing countries or ensuring diversity and equality of opportunity in the workforce closer to home, feature less. Surely they have as good a claim to being sustainable goals as not setting the planet on fire? Such goals feature less regularly in the debate despite having been identified by the UN as legitimate goals towards sustainability.
Lack of transparency
Given that omission, it's reasonable to ask whether the business drive towards sustainability is as much about marketing as environmental management. Greenwashing, the practice of businesses advertising their green credentials primarily to secure greater market share, is a widely known phenomenon. It smacks of a lack of transparency. Nevertheless, it makes forming an independent assessment of the green credentials of a business more difficult. The difficulty is more accentuated when investment decisions are being made on the back of sustainability claims.
Only slow progress is being made on resolving this problem of transparency. Individual agencies and regulators do set standards to help determine the green credentials of particular types of fuels, equipment and machinery and so on. But regulators and standard setters are still pretty much at sea when it comes to establishing widely accepted norms for reporting credible sustainability behaviours in the annual reports and accounts of companies.
There are at least eight different governmental organisations, quangos and professional associations with multinational reach which are currently attempting to formulate or contribute to acceptable industry wide standards. Nothing coherent has yet to emerge from these efforts. It is tricky to put hard numbers on any company's observance of environmental sustainability, human rights, diversity or workplace inclusiveness.
Without hard numbers, subjective judgements can raise as many questions as they resolve. The drive for ethical investment, only buying shares in businesses which in some way are believed to be doing the right thing, has impacted many industries such as tobacco and mining.
The drive towards corporate social responsibility has permeated all the way up to the American Business Roundtable, a leading US corporate think tank. Last year it posited that the purpose of a corporation should include delivering customer value, employee investment, fair dealings with suppliers and community support as well as the more traditional purpose of creating long term value for shareholders.
All this is very worthwhile, but any claims to progress on sustainability should be based on a robust framework of standards, and not merely subjective value judgements. Bezos says his contribution should be applied to “scientists, activists, NGOs — any effort that offers a real possibility to help preserve and protect the natural world”. Included in such efforts should be the development of objective and transparent sustainability reporting standards for business.
After all, what gets measured gets done.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland.

Originally published on Business Post, 16 February 2020
It seems we now have the most left-leaning Dáil in decades. And although at this stage we are not yet clear on what shape the government is going to take, there is a good chance that we may also end up with the most left-leaning administration in decades too.
As a result, it’s apt to ask whether Irish businesses should be concerned about the kind of economic and fiscal policies that might be introduced.
Daft economic policies that are damaging to business prospects are not the exclusive preserve of left-wing politicians. The daftest economic policy anywhere, Brexit, was the brainchild of a British Tory government which could be described as many things, but certainly not left-wing.
Developed economies tend to have robust governance and civil service implementation structures which ensure that the worst excesses and pipe dreams of politicians don't automatically get anywhere beyond the pages of their manifestos.
Those structures at times may seem undemocratic, but just as often, they are the badge of a country which is not a failed state.
Ireland has had such public governance arrangements and civil service institutions for a very long time. Some of the checks and balances, for example, the special rules to raise taxes with a finance bill, are written into the Constitution.
Some tax-raising mechanisms are almost a century old – the Office of the Revenue Commissioners was founded by an order of a Sinn Féin TD you may have heard of called Michael Collins. Other controls are relatively new, such as the so-called ‘Two Pack’ EU budget rules for the eurozone countries.
The result is that the tax policies of any government, be it left-wing or right-wing, must survive triage both from parliamentary and constitutional rules, and from the civil service which must implement them.
At this point, there’s little value in revisiting in minute detail the manifestos of the political parties – to do so would be to re-fight the election. Suffice to say that the tax plans of Sinn Féin, the Green party, the Social Democrats and Labour reflect a change in approach to the taxation of income and capital from what we have become accustomed to over the last decade, with wealth taxes and financial transaction taxes in the mix.
The degree of fiscal conservatism of the last decade has been unusual. Previously, the cornerstones of our tax policy – inheritance tax, capital gains tax, even corporation tax itself – were all introduced by coalition governments with a left-wing component provided by the Labour Party.
Even the 12.5 per cent rate of corporation tax, which for over 20 years has been the effective shorthand for the policy of successive Irish governments’ approach to companies, was the brainchild of a Labour finance minister, Ruairi Quinn.
But since then, fundamental changes to our tax system have been rare. USC is just income tax by another name. The local property tax collects less than 1 per cent of the total tax. Instead of reform, we have tinkered with bands and rates, narrowing the base and all the while pushing the system in a more left-wing direction.
Our income tax system is based on the 80/20 rule. Roughly 80 per cent of income tax is collected from 20 per cent of individuals. Most goods and services in this country, particularly essential items such as food, healthcare and housing, are either exempt from Vat or are taxed at the lower 13.5 per cent rate.
The 23 per cent Vat rate applies to a relatively small category of goods by European standards. The vast amounts of corporation tax collected means that companies pay about €2,000 in tax each year for every person in the country. In tax policy terms, this is about as left as it gets.
However, the position at the macro level is different and might even be described as right-wing. Compared with many other OECD countries, Ireland takes only a modest slice of its GDP through taxation.
If we aspire to provide more money for healthcare, social welfare, retirement benefits, housing, education, environment and local government, then the choices are not about simply raising the top rate of tax for higher earners. The real choice would involve a major policy decision to increase the overall levels of taxation within the economy.
This could involve introducing things like a broader-based local property tax at higher rates. It could involve introducing higher Vat rates and higher PRSI contributions for employers, employees and the self-employed alike.
It could mean bringing in a Swiss-style wealth tax, which currently contributes 6 per cent of total revenue in that country, while exempting many gains, gifts and inheritances so that there is some wealth to tax.
It could also mean risking our successful corporation tax regime by increasing rates, or reducing incentives for research and development and capital investment. It should mean taxing everyone a little more, because while tax is about redistribution, it is not about punishment.
The next government will claim to be more attentive to voters’ concerns and requests, but will it make the big fiscal choices? Will the ground truly tilt left? History suggests not.
Dr Brian Keegan is director of public policy at Chartered Accountants Ireland

Business Post 9 February 2020
Now that the scramble for votes is over, the scramble for the big jobs in government begins.
The job descriptions of the 15 ministers allowed under the constitution has changed many times, as successive Taoisigh sought to emphasise or reallocate political priorities. New portfolios get created, and then can be re-amalgamated as happened with Finance and Public Expenditure and Reform in 2011. Also as part of the deck shuffling by Enda Kenny in 2011, responsibility for trade was moved to the Department of Foreign Affairs. The move was broadly welcomed at the time, notably by the Fianna Fáil leader Micheal Martin.
Trade is where the diplomatic rubber hits the road for open economies. When outlining Britain’s trade negotiation strategy on Monday last in Greenwich, Boris Johnson quoted the 19th century Liberal politician Richard Cobden. Cobden once described free trade as “God’s diplomacy”, the best way of keeping the peace.
More pragmatically, Ireland’s tiny pool of natural resources along with a small indigenous market means that we simply cannot go it alone and ignore international trade. It makes perfect sense to have the trade function directly linked to the Department of Foreign Affairs and, in parallel, for Ireland to increase the number of diplomatic missions abroad in recent years as it has done. Quite literally, if you're not in, you cannot win.
If ever there was a need for Ireland's trade concerns to be in step with our diplomatic efforts, it is now. There will be no immediate land border issue on the island of Ireland as a consequence of Brexit. Having this problem resolved diminishes any special negotiation status we may have within the European system, though there is optimism in official circles that the other EU countries won’t throw Ireland to the Brexit wolf as the future relationship with Britain unfolds. As Finance Minister Paschal Donohoe was quoted as saying last week, “we will be seeking at all times to put both the European interests and the Irish interest first and I believe they are going to be fully aligned”.
This is the kind of diplomatic circumlocution that will be required in the coming months from our next Minister for Foreign Affairs and Trade. Brexit makes little commercial sense for most Irish and British people in industry. It will make even less commercial sense for the British if Britain becomes obliged to stick to EU norms and standards to secure a comprehensive free-trade agreement with the EU. This was the underlying message of Boris Johnson’s Brexit policy speech in Greenwich on Monday last.
On the other hand, the EU cannot grant Britain free access to its market unless Britain continues to accept EU standards. To do otherwise would dilute the necessity for any country to be a fully paid-up member of the EU to gain access to EU markets. Compounding this problem for Brussels is that several other EU member countries aren’t entirely clear themselves on what constitutes adherence to standards and quite often don’t bother themselves unduly when going about implementing EU legislation. Nor is Ireland the only EU member country fighting State Aid tax cases against the Commission.
The new Minister responsible for Foreign Affairs and Trade will also be embroiled in two further scenarios. He or she will need to continually reassure investors from outside the EU that Ireland is still the place to be when doing business with Europe, and that because of Brexit we can offer even more opportunities than before, while at the same time dealing with a growing contradiction in the all island economic approach.
Successive governments on both sides of the border have long extolled the virtues of an all-island economy but the Northern Ireland economy is imbalanced. It is overly reliant on the public sector. The Brexit withdrawal agreement has created a hybrid form of trading existence (part UK, part EU) for Northern Ireland. Northern Ireland will have, in effect, dual membership of both the EU Customs Union and the UK Customs territory, and a similar dispensation for VAT. This makes Northern Ireland an ideal place to consider establishing a business if looking to trade with Britain in high tariff or highly regulated goods.
It follows that the worse the future trade deal is between the EU and Britain, the greater the potential advantage to Northern Ireland of having this dual-regime arrangement. A thriving Northern Ireland economy should reduce Stormont’s dependency on public sector funding from Westminster which involves a subvention in excess of £1billion sterling a month.
So now, in the course of the negotiations on the future trading relationship between Britain and the EU, the economic interests of the North and South will be directly at odds. It will take a particular brand of diplomatic skill to square this particular circle.
In his Greenwich speech, Johnson without any sense of irony quoted Cobden’s “God’s diplomacy” idea as the best way of keeping the peace. Cobden could not have envisaged, and perhaps Johnson does not care, about the trouble the next Irish Minister for Foreign Affairs and Trade will have in ensuring that free trade does indeed keep the peace. Any takers for the job?
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland